The oil bomb

Why did the Arab countries say that they might shift partly to Euro? With the fall in the dollar’s value, OPEC saw the real value of its oil, its dollar surpluses and dollar holdings decline too. Since oil has largely been sold in dollars through NYMEX and IPE, oil sellers put their hordes of surplus “petrodollars� in US banks, real estate and other investments. But now the dollar’s decline has made selling in dollars no longer as valuable as it was. While buying in dollars means that oil-importing countries have to have many more dollars to buy the same amount of oil because not only has the oil price kept rising, its price has also gone up with the erosion of Third World currencies (as has their foreign debt). Oil import bills have doubled and trebled since the oil price rise started, making a mess of national trade balances.
When recently Saudi Arabia announced a small increase in oil output, crude prices should have fallen. Contrarily, they went up instead, underlining the influence of greedy speculators and manipulative hedge funds. Plus the probable attack on Iran. However, Saudi Arabia didn’t say it would increase oil output because of US pressure but for the obvious reason that, like China, its doesn’t wish to kill the geese that lay golden eggs for the oil-producing countries. There is more. Saudi Arabia has not forgotten the lesson from the famous oil price hike of 1973: don’t take the price of oil so high that alternative energy sources become viable. When oil goes beyond $150, American shale oil, heavy crude and Canada’s Calgary oil sands will variously become viable. So will solar power. Once they tap these resources, what then? Plus one cannot rule out the bizarre possibility that Saudi Arabia has been told that Iran will soon be attacked. That would leave Goldman Sachs’ prediction of oil at $200 by year’s end far behind and drive its price up beyond imagination, leading to a global economic meltdown. Better to start reducing prices now by increasing output than wait for the possible fallout. However, this last is only conjecture and will always sound fanciful until it actually happens.
The only way America can strengthen the dollar is by creating a trade surplus. Impossible. That would mean reducing their workers to near-slavery to compete with Chinese wages and other inputs. “What will happen in the US?� asks The Voice. “Chaos for sure. Maybe a workers revolution, but looking at the situation as it is now, it is more likely to be a re-run of Germany post-1929, and some form of an extreme right wing movement will emerge.� The romantic socialist notion of a “workers revolution� aside, there is a point here. The Great Depression of the 1930s caused a rightward swing in Germany and led to the emergence of the Nazis. Yes, America is a democracy because its system works for it, but democracy is fragile. It doesn’t take much adversity to derail it.
Before you get too excited, let me caution you that the assumption that that America will suddenly collapse is wishful thinking. It is we who are more likely to collapse, at least before America does. Sure history is witness to the fall of many civilisations, empires and superpowers. They all collapsed because they ran out of intellectual steam that led to decadence and internal contradictions. Only Britain’s was a managed withdrawal from empire. But America is not the Soviet Union. It is a country crafted by consensus, not force. Its people are proud to be Americans, not sullen like the Soviets were. It is based on the ideals of “life, liberty and the pursuit of happiness.â€� The USSR was based on an unworkable and increasingly inhuman Leninist-Stalinist totalitarianism. America is dynamic, not decadent. The American Declaration of Independence is one of the greatest pieces of writings by man. In contrast, Lenin’s voluminous works read like a dirge. The first three words of The Declaration of Independence â€" “We the peopleâ€� â€" bring a lump to the throat because they say it all. Today America is so far ahead in knowledge of all kinds, especially in the sciences, that no country has a chance of catching up unless America loses its great ideals. The problem with America is that it does not accept the right of others to practice those same ideals if it does not consider the outcome to be in its interest or if it threatens its hegemony. Yes, China, Russia and Germany will soon acquire polarity too, but the magnetism of the American pole will still be the greatest because America has primacy over all fours sources of global power â€" knowledge, communications, finance and military. China, Russia and Germany have strengths in only one or two, not all four. That’s the difference.
The writer is a political and economic analyst
Email:humayun.gauhar786@gmail.com